VAT Gap: EU countries lost €137 billion in VAT revenues in 2017
EU countries lost €137 billion in Value-Added Tax (VAT) revenues in 2017 according to a study released by the European Commission yesterday. The so-called 'VAT Gap' - or the overall difference between the expected VAT revenue and the amount actually collected - has reduced somewhat compared to previous years but remains very high. This substantial VAT Gap again highlights the need for comprehensive reform of the EU VAT rules, as proposed in 2017 by the Commission, and increased cooperation between Member States to clamp down on VAT fraud and to make the rules work for legitimate businesses and traders. The VAT Gap measures the effectiveness of VAT enforcement and compliance measures in each Member State, as it provides an estimate of revenue loss due to fraud and evasion, tax avoidance, bankruptcies, financial insolvencies as well as miscalculations.
Commissioner for Economic and Financial Affairs, Taxation and Customs, Pierre Moscovici yesterday said:
"The favourable economic climate and some short-term policy solutions put in place by the EU helped to lower the VAT Gap in 2017. However, to achieve more meaningful progress we will need to see a thorough reform of the VAT system to make it more fraud-proof. Our proposals to introduce a definitive and business-friendly VAT system remain on the table. Member States cannot afford to stand by while billions are lost to illegal VAT carousel fraud and inconsistencies in the system.”
Romania recorded the largest national VAT Gap with 36% of VAT revenues going missing in 2017. This was followed by Greece (34%) and Lithuania (25%). The smallest gaps were in Sweden, Luxembourg and Cyprus where only 1% of VAT revenues on average fell by the wayside. In absolute terms, the highest VAT Gap of around €33.5 billion was in Italy.
Individual performances across Member States still vary significantly. The VAT Gap decreased in 25 Member States and increased in three. Malta (-7 percentage points), Poland (-6 percentage points) and Cyprus (-4 percentage points) showed strong performances, with large decrease in their VAT losses. Seven Member States, namely Slovenia, Italy, Luxembourg, Slovakia, Portugal, Czechia and France also revealed robust results, reducing their VAT Gap by more than 2 percentage points. The VAT Gap grew noticeably in Greece (2.6%) and Latvia (1.9%) and marginally in Germany (0.2%).
In nominal terms, the VAT Gap decreased by €8 billion to €137.5 billion in 2017, a similar amount as the 2016 decrease of €7.8 billion. The VAT Gap in 2017 represents 11.2% of total VAT revenues in the EU, compared to 12.2% the year before. This downward trend can now be observed for the fifth consecutive year.
The VAT Gap report published yesterday concentrates on 2017, as this is the most recent period for which comprehensive national accounts data and own resources data are available. This year's study introduces a new element, however: a forecasting exercise which provides so-called “fast estimates” for the year preceding the publication year, i.e. 2018. These fast estimates indicate that the VAT Gap will likely continue its downward trend and fall below €130 billion and 10% of the VAT Total Tax Liability (VTTL) in 2018.
The VAT Gap study is funded by the EU budget and its findings are relevant for both the EU and Member States as VAT makes an important contribution to both the EU and national budgets. The study applies a “top-down” methodology using national accounts data to produce estimations of the VAT Gaps. The method used was improved and refined over the years and offers now the best combination of estimates in terms of comparability of results and accuracy.
For more information
For more information, see our FAQ.
Latest News from
Parliament adopts major reform of road transport sector10/07/2020 10:33:00
Parliament backs revised rules to improve drivers’ working conditions and stop distortion of competition in road transport.
Budget and recovery: MEPs push for clarity on EU own resources10/07/2020 09:25:00
The EU should secure adequate funding to push through its recovery plans and emerge stronger from the Covid-19 crisis, MEPs said during a plenary debate on 8 July.
MEPs want the EU to play a stronger role in improving public health09/07/2020 16:43:00
In a debate on the EU’s future public health strategy, MEPs said COVID-19 has shown that the EU needs stronger tools to deal with health emergencies.
EU leaders prepare timetable and structure for EU budget negotiations09/07/2020 15:25:00
The four presidents of the main EU institutions met yesterday to prepare the intensive inter-institutional negotiations that lie ahead.
Debate on EU budget and recovery: “A deal in the Council is not the final deal”09/07/2020 14:43:00
Looking back on the 19 June and forward to the 17 July European Council meetings, MEPs conveyed their stance on future EU financing and economic recovery.
Angela Merkel presents German Presidency priorities to the European Parliament09/07/2020 13:25:00
MEPs discussed with Chancellor Angela Merkel and Commission President Ursula von der Leyen the strategy and goals of the German Presidency in the coming six months.
Questions and answers: An EU Strategy for Energy System Integration09/07/2020 12:38:00
Energy system integration refers to the planning and operating of the energy system “as a whole”, across multiple energy carriers, infrastructures, and consumption sectors.
Powering a climate-neutral economy: Commission sets out plans for the energy system of the future and clean hydrogen09/07/2020 11:33:00
To become climate-neutral by 2050, Europe needs to transform its energy system, which accounts for 75% of the EU's greenhouse gas emissions.
Parliament to vote on revision of trans-European energy guidelines09/07/2020 10:38:00
MEPs are set to call for funding guidelines for key energy projects and improved storage solutions to better match the EU's ambitious climate goals.